Spread betting and CFD trading are two popular forms of trading shares, forex, commodities, and more in the UK. While these two types of trading have a lot in common, there are also some important differences that you need to know about.
In this guide, we’ll explain how spread betting vs CFD trading works and help you decide which is right for you.
71.2% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.
67% of retail investor accounts lose money when trading CFDs with this provider.
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67% of retail investor accounts lose money when trading CFDs.
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Let’s take a look at some of the key differences between spread betting vs CFD trading:
72% of retail investor accounts lose money when trading CFDs with this provider.
Spread betting and CFD (contract for difference) trading have a lot of similarities in addition to their differences. Here’s how CFDs vs. spread betting stack up:
CFD Trading and spread betting are two types of derivative products that allow you to speculate on the price movement of an underlying asset. The underlying asset can be shares, ETFs, forex, commodities, indices, and more. With both types of derivatives, you never own the underlying asset.
When trading CFDs or spread betting, you can take a long position or a short position. That means that you can speculate that the price of an asset will rise (long position) or that it will fall (short position) and profit in either direction. Your profit or loss is simply calculated as the difference between the asset’s price when you close the trade minus the price when you opened the trade, multiplied by the amount of money you invested.
In addition, you can leverage your trades when using either CFDs or spread betting. Each asset will have a different maximum leverage that is set by your broker based on its financial risk. Depending on your broker, you may or may not be able to customise the amount of margin you use when trading CFDs or spread betting.
Within those broad strokes, there are some nuanced differences between spread betting and CFD trading.
When CFD trading, you are opening a contract with your broker or CFD provider. You may need to pay a commission to open or close the contract, and there may be holding fees such as overnight or swap fees that add to the cost of your position.
Importantly, CFD contracts are transferable between CFD traders. That means they are traded on the open market, and many brokers provide direct market access (DMA). This increases transparency in the CFD market and increases the value of fast trade execution speeds.
Financial spread betting is similar to CFD trading in that your position starts by opening a contract with your broker. However, there is never a commission to open a spread bet.
Spread bets are not transferable between traders, so they trade over the counter directly with your brokerage. In addition, spread bets have expiration dates. The bet can be closed at any time before the expiration date, but it will automatically be closed at that time if it has not already been closed.
One of the main differences between spread betting and CFD trading lies in how profits from these 2 derivatives are taxed.
Tax law in the UK and Ireland exempts both forms of trading from stamp duty since you never own the underlying asset. However, CFD trading is subject to capital gains tax (CGT), while spread betting is not.
That means that if you make a profit from CFD trading, you must pay capital gains tax on those profits. If you suffer a loss while trading CFDs, you can use that loss to offset profits from other CFD trades or from trades with other financial instruments. Profits from spread betting are not taxed, but you cannot use losses from spread betting to offset profits from CFD trading or other types of investments.
Another way CFDs vs spread betting are different is in the fees you pay to trade. You may pay a commission or transaction fee to open a CFD trade, while spread bets are never subject to commissions. The good news is that many CFD providers now offer commission-free trading.
For either trading CFDs or spread betting, you will need to pay a spread. This is the difference between the bid and ask price of the underlying asset that you are trading around. Spreads can vary by asset and may fluctuate based on liquidity in the market.
Another thing to keep in mind is that when using CFDs to trade forex, you will need to purchase the CFD in the appropriate currency for the forex pair you want to speculate on. That means that if you are trading forex pairs in currencies other than GBP or USD, you may pay currency conversion fees to your broker.
Spread bets on forex pairs can be opened in any currency, so you do not have to worry about currency conversion fees.
CFDs vs spread bets also differ in whether you have to worry about contract expiration dates.
CFD contracts do not have expiration dates. Typically, contracts are set out for a period of one month at a time, but your broker will automatically roll your position over into a new contract before the old one expires. So, you can keep your position open for as long as you want (although there may be holding fees and increased margin requirements if your position is losing money).
Spread bets, on the other hand, do have expiration dates. Typically, there are 2 types of spread bets: those that expire at the end of the trading day, and those that expire on a quarterly basis. Depending on your broker, you may be allowed to roll over your spread bet into a new contract. If you do not roll over your contract, your bet will automatically be closed at expiration.
Spread betting and CFD trading are both regulated in the UK by the Financial Conduct Authority (FCA). This is the UK’s primary financial watchdog, and it sets rules that govern how brokers can issue leveraged financial products for retail investor accounts.
An important thing to note is that spread betting is only allowed in the United Kingdom and Ireland. However, CFD trading is allowed around the world. So, all brokers that offer spread betting are regulated by the FCA. But some brokers that offer CFD trading in the UK may be regulated by foreign authorities, such as the Cyprus Securities and Exchange Commission (CySEC).
One thing that investors should note is that you cannot trade cryptocurrencies in the UK through CFDs or spread betting. The FCA has banned all cryptocurrency derivatives trading, which includes both CFDs and spread betting.
There are advantages to spread betting and CFD trading, as well as some disadvantages to both types of trading.
Want to start trading using spread betting? Let’s take a closer look at 2 of the top spread betting platforms available in the UK today:
Pepperstone is a comprehensive spread betting broker that’s suitable for beginners and expert traders alike. The broker stands out for offering a wide range of trading platforms, including the popular MetaTrader 4, MetaTrader 5, and cTrader platforms.
All three platforms allow you to build your own custom technical indicators and backtest strategies for in-depth analysis. On top of that, the MetaTrader and cTrader platforms put an emphasis on risk management and give you access to advanced order types to help you manage trades.
In addition, Pepperstone offers social trading through MetaTrader 4 and Myfxbook. If you’re interested in trading forex, these social trading platforms can be extremely helpful for connecting with other spread bettors and learning new trading strategies.
Pepperstone’s range of markets is somewhat limited, especially compared to Capital.com. The broker offers around 180 financial instruments, including more than 60 forex pairs and 60 popular stocks from the US. The company offers extremely low spreads with leverage up to 30:1 on major forex pairs, so it’s one of the cheapest spread betting platforms in the UK.
Pepperstone is regulated by the FCA and all UK accounts come with negative balance protection. The broker offers 24/5 support by phone, email, and live chat.
Capital.com is our overall favorite spread betting platform in the UK. This broker offers traders access to more than 3,000 financial markets, including thousands of shares, over 140 forex pairs, and dozens of commodities.
You can start spread betting with Capital.com with just a £20 minimum deposit. The broker offers an array of educational tools to help you get started, including a demo account where you can practice spread betting risk-free. The broker also has a library of videos and tutorials to walk you through popular trading strategies.
One of the best things about spread betting with Capital.com is that this platform comes with tools to help you consistently improve your trading. The broker has an AI-powered trade tracking software that identifies patterns in what trades you’re winning and losing. Based on those patterns, the software will automatically make recommendations for how you can double-down on the spread betting strategies and trading patterns that are working well for you.
Capital.com’s technical analysis platform is available for web and mobile, and it’s quite comprehensive. You get access to dozens of technical studies and drawing tools, plus a news feed and economic calendar. The mobile app also supports price alerts, so you can stay one step ahead of the market.
Capital.com is regulated by the FCA. The broker stands out for offering negative balance protection with all spread betting accounts, which means you can’t lose more than your initial deposit even when trading with margined products. In addition, Capital.com offers 24/7 customer support by phone, email, and live chat.
If you think CFDs are the right fit for you, you have a ton of options when it comes to choosing the best CFD trading platform. Let’s take a closer look at our top 2 recommendations:
eToro is our top pick for UK traders looking for a CFD provider. This broker offers trading on more than 2,000 shares from exchanges around the world, including in the UK, US, Europe, Australia, Hong Kong, and South Africa. In addition, eToro has CFDs for over 40 currency pairs and 25 popular commodities.
CFD trading with eToro is 100% commission-free, which is a huge advantage for traders looking to keep costs down. The broker’s spreads are in line with the UK industry average for most assets. While eToro does charge a small withdrawal and inactivity fee, these are straightforward to avoid.
eToro has its own custom trading platform, available for web and mobile devices. The platform includes over 100 technical studies and drawing tools, along with a market news feed and an economic calendar. You can also see whether other traders on eToro are buying or selling an asset, which makes it easy to quickly spot changes in momentum.
Perhaps the best thing about eToro is its social trading platform, where you’ll find tens of thousands of other CFD traders from around the world. You can share trade ideas, success stories, and trading strategies. In addition, eToro supports copy trading - so you can follow professional CFD traders and mimic their portfolios with just a few clicks.
eToro is regulated by the UK FCA and is widely considered to be trustworthy. All UK trading accounts are protected by the Financial Services Compensation Scheme for up to £85,0000. eToro offers customer support by phone and email, 24/5.
Libertex is another top CFD trading platform in the UK. This broker stands out for its low-cost pricing structure, which completely eliminates spreads from your CFD trades.
Instead, Libertex charges small commissions that can be as low as 0.008%, which is below the industry average for forex trading in the UK. Helpfully, the commissions are fixed for each asset so you always know how much your trade will cost.
Libertex doesn’t have the widest selection of assets to trade, but most traders will find plenty to focus on in the hand-picked selection. This CFD broker has more than 50 currency pairs and around 80 of the most popular US stocks. You can also trade a range of stock indices and commodities through CFDs with this broker.
Libertex offers 2 trading platforms: its own custom Libertex platform and the popular MetaTrader 4 platform. Both are available for web and mobile devices. We particularly like that Libertex’s custom platform is flexibly designed and includes a market sentiment gauge to help you track changes in an asset’s price momentum. It also offers a variety of order types for risk management and a built-in market news feed.
Libertex is regulated by the Cyprus Securities and Exchange Commission (CySEC). The broker offers customer support by email only.
What we don’t like:
83% of retail investor accounts lose money when trading CFDs with this provider.
Spread betting and CFD trading are financial derivatives that allow you to speculate on the future price of an asset without actually owning it.
Before you choose between spread betting vs CFD trading, it’s important to understand the differences between them. A big advantage of spread betting is that it is free from the capital gains tax, while CFD trading is not. On the other hand, CFD trading is available outside the UK and Ireland and CFD contracts do not expire.
If you’re ready to get started with spread betting, we recommend Capital.com. If you want to trade CFDs, we recommend getting started with eToro.
Spread betting and CFD trading both use leveraged derivatives to allow you to speculate on the price of an underlying asset without actually owning it. However, they are different forms of trading and have different tax implications and fees.
Yes, many CFD brokers, including eToro, offer 100% commission-free CFD trading. Spread betting is always commission-free at brokers that offer it.
Spread betting is considered a form of betting rather than a form of investing. As a result, it is not subject to capital gains tax in the UK and Ireland.
You may be able to select how much leverage to trade with, up to a maximum amount for your chosen asset. Whether or not you can adjust your leverage depends on your broker.
Direct market access means that your trade is passed directly to the market for execution, without first being looked over by a broker’s in-house trading office. This speeds up execution speeds and increases the transparency around your trade pricing. Direct market access is only available for CFD trading, not spread betting.
Michael Graw is a freelance journalist based in Bellingham, Washington. He covers finance, trading, and technology. His work has been published on numerous high-profile websites that cover the intersection of markets, global news, and emerging tech. Michael has also written for TechRadar, Tom’s Guide, StockApps, Buyshares and LearnBonds.
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